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The U.S. may be approaching a dangerous ``tipping point'' in its international transactions.

At the end of last year, foreign investments in the U.S. were worth $2.5 trillion more than this country's investments in the rest of the world. Yet last year, those U.S. assets abroad remarkably still earned $30 billion more than the foreign assets here.

That stunning disparity in returns is one of many reasons why the huge U.S. current account deficits of recent years have been so readily financed. The sagging net investment position wasn't being compounded by an ever higher interest bill -- as is the case with the mounting U.S. government debt.

This year the game has changed.

Net U.S. investment income turned negative by $455 million dollars in the second quarter, marking a swift deterioration from a $15 billion surplus in the first three months of 2004.

If this trend continues -- and there's no reason to think it won't -- the U.S. will be paying a steadily rising net amount to foreigners, and those payments will both increase the U.S. current account deficit and worsen the country's net investment position.

This is an important point. But I personally don't think we are at - or anywhere near - that tipping point right now.

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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".

Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.